The cloister and the heat

The minister of finance will not be joining a cloister, but he will be far more out of circulation than ever over the next six weeks or so as he buckles down to the business of preparing the budget for 2003. Having returned from hearing the woes of the world expressed at the meeting of his peers in the Commonwealth, and more so at an annual meetings of the World Bank and the IMF, he now has to focus more sharply than ever on the economic and financial situation back home.

He will have updated himself as much as can be about the state of the world economy, on which we depend so heavily but can exercise no influence. He will shortly have at hand the provisional statistics about how our own economy performed in the nine months to September, upon which the Economic Survey he will present when delivering his Budget speech will be based.

He will also receive a forecast for the final quarter, to which the Central Bank will contribute. The minister will duly note that the statistics and forecast tell a story of some economic recovery, suggesting modest growth after allowing for price increases. Whatever he says in the Budget speech, he knows that statistics do not tell the whole story. Reality, perhaps with its negatives exaggerated at times, will come from the accounts that economic operators give him when he meets them off-the-record.

With October into its second week the minister will also have the full figures of the government's financial situation for the first nine months. Those for the first eight months have not been telling him a pretty story. He may, at a political level, ignore the criticism that various Opposition voices have been levelling at him. Publicly he will maintain the line that the public finances tend to pick up in the last quarter.

Privately he is in a position to know better than anyone else that is much less the case than it used to be. Improved efficiency in collecting taxes, with the Inland Revenue and Vat computers finely tuned to implement automatically the sharp systems put in place over the past five years, ensure that tax is collected more regularly than ever before.

The finance officials will metaphorically flog and bombard the revenue collecting departments by the hour to reach and possibly exceed their targets. But the minister, with updated reports regularly at hand, knows that there is a limit to it all. He also has to admit to himself that ordinary revenue has this year been inflated with one-offs from the registration of investments scheme (though that should push up revenue on a regular basis too) and from the tax receipts related to the partial privatisation of the Malta International Airport Company.

Beyond accounting controversy, it is a fact that those MIA tax receipts will not recur, though as tax payments they had to be recorded under recurrent revenue. The minister will also know exactly how recurrent expenditure has run up in the first nine months. Only a small part of such expenditure will be on an accrued basis - still outstanding - at the close of the year. The main impact, therefore, will go through the accounts. The minister knows, even if he has not been saying much about it publicly, to what extent his strictures about containing public expenditure have been heeded.

The conspicuous signals - travel, entertainment, and so on - are not encouraging. The minister will reiterate that such "discretionary" expenditure accounts for a small fraction of public spending, that most of such spending, which continues to rise, goes on public pay and social security. Yet he must know that perception counts for a great deal.

All that will be going into the account for the year the minister will be working on for his Budget 2003 presentation. Upmost in his mind will be that Budget itself. He can dress it up in good prose. But words can only paint a picture and positive forecasts. Reality inevitably catches up with them.

It caught up in 1996, against the misleading tune of money-no-problem. It will do so again. The minister is as aware of that as he was aware when he presented his confidential memorandum to the same prime minister back in 1996, which led him to call an election before the budget for 1997 had to be presented. The coming one will be this government's last budget before the election, even though it need not be so.

The minister will speak of achievements. The Budget, though, is a forward-looking instrument. In that regard the minister is hamstrung over the measures he can take. New taxation - as distinct from seeking further tax efficiency - will be out of the question. If there is fiscal relaxation - tinkering with the tax bands again - and marginal improvements in social security payments, the minister will run the risk of being charged with electioneering. If he tries to keep the forecast absolute (structural) deficit in check by trimming capital expenditure, saying that the rate of spending in the new general hospital can slow down, he will be charged that he is cutting back at a time when the economy needs a boost.

The finance minister will not be going into a cloister. But he will have to pray hard for protection from the heat in the pipeline.